Like many of our colleagues, our initial investment hypothesis is always to achieve a 5-10x return when we invest. When achieved, these are often referred to as the stars, performers or unicorns of a venture capital portfolio.
Sunstone continuously monitors and analyzes all M&A transactions for therapeutic companies HQ’ed in Europe, achieving an exit transaction value exceeding EUR 50M and we recently looked at the multiples for investors participating in Seed, A, B, C and D rounds relative to the amount invested. Our analysis indicates that it is unlikely, or very challenging, to achieve a multiple above 5x, or even 3x, once the combined investment exceeds EUR 45M!
Is the strategic, hard to quantify, technology-value of a platform disregarded in favor of a simpler risk-adjusted project NPV around EUR 45M?
Is this a European phenomenon and are our American colleagues better at creating >EUR 45M, >5x companies?
What is the potential impact of the increasing size of European venture capital funds and how will it impact future return multiples when these funds deploy more capital per portfolio company?